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By Renee M. Covino
In the 1970's, convenience stores were written up in the business press as the new gold fields for the candy and snack business. Today, they are established merchandisers of all types of quick treats, from chocolate to chips.
But with a weakened economy, raw material costs rising, manufacturer price increases, and decreased consumer spending, sales in the latter half of the year are looking less promising in many categories. Have candy and snacks been affected?
To gather the most recent category reports and share ideas for a sweet and salty future, Convenience Store News put together a forum of five retailers and the industry's largest wholesaler, McLane Co. Inc. Our virtual panelists are:
-- Terry Messmer, merchandising manager for NOCO Express, based in Tonawanda, N.Y., with 31 stores.
-- Brad Eaton, category manager at Spinx Co. Inc., based in Greenville, S.C., operating more than 75 c-stores.
-- Jared Sturtevant, director of category management, Nice N Easy Grocery Shoppes, based in Canastota, N.Y., with 84 stores.
-- Bonnie Arnold, general manager for The Sea Stores, based Charleston, S.C., with four sites.
-- Dave Stukus, convenience category manager at TravelCenters of America, based in Westlake, Ohio, and operating 166 locations.
-- Bill Walker, product director for candy and snacks at McLane Co. Inc., based in Temple, Texas.
CSNews: Generally speaking, what is the state of your candy and snack business?
Messmer: Our business has been very good this year. Candy sales are up 10 percent and snack sales are up 12 percent. Our gross profit dollars in candy are up 12 percent, while snacks are up 10 percent.
Stukus: Considering the current state of the economy and the reduced number of trucks on the road, we are doing pretty well with candy and snacks.
Eaton: Our candy sales are up about 4 percent over the previous year. Chocolate bars appear to have the biggest increase over last year.
Walker: Meat snacks, and nuts and seeds continue to showgrowth for us in both sales and units.
Arnold: I have seen an increase in gum and mints. Candy, specifically chocolate, has remained flat.
Sturtevant: For us, the candy and snack business is weak compared to our other categories. It is continuing to grow, but not at the pace of alcohol and packaged beverages. The dollar growth in snacks far exceeds what we are seeing in candy.Price increases this year certainly hurt our volume growth.
CSNews: Have you seen any change in the candy/snack business in the last six to 12 months?
Stukus: Obviously, the multiple price increases by many of the major suppliers this year have really impacted the business. It's putting retailers in a difficult position, since we are all faced with the decision of crossing the 'price thresholds' that we didn't think we would be facing this soon. We are adding space for these categories, developing creative planograms, trying to be first-to-market on new items like Nabisco's Cakesters, and promoting innovative snack and candy items that are not readily available in the marketplace.
Messmer: When you look at our key moving items, it goes back to items like Snickers, the 'old staples,' the core items, being our best movers. Our top four items are Snickers and Reese's King Size and regular bars. And then in snacks, we're showing good growth in beef jerky and the Frito Lay potato chip line, with Doritos being No. 1. As for change, with the price increases and reduced sizes in the packages, we are continuing to offer value items on promotion for our guests monthly. But the prices are tricky right now because as costs increase, it's tough to try and maintain a good margin. With candy, we used to be two for $1 on regular size. Now, instead of a two-fer, we'll do a single bar for 75 cents. We're also doing two for $2.22 on king size, and it used to be around 99 cents each. We're just not getting as deep a discount on shippers, so we have to adjust accordingly.
Sturtevant: We added an additional shelf of single-serve chips to the foodservice area of our Eatery locations. Most changed from three shelves to four, and gave us an additional eight to 16 linear feet of pack out. Another huge change is Frito Lay converting its 99 cents pre-priced to $1.29. We could not be happier with that switch. It added more penny profit to every sale in that space.
Eaton: Bag candy has dropped 13 percent over last year, yet our entire candy category is up. This will be a strong factor in planning 2009 sets. I can use some of this space for additional theater candies, a fast-growing segment for us.
Walker: At midyear, candy was holding its ownor slightly up in unit sales. After midyear, we're seeing a slight decline. Despite theeconomy, snacks continue to showgood growth through innovation, and more opportunity is realized having business movefrom direct-store delivery (DSD).
CSNews: Industry experts tell us that in a weakened economy, consumers will continue to spend on their candy and snack treats. Do you agree?
Stukus: I agree. We have many dining options in our facilities, as most locations have a sit-down restaurant and multiple quick-service restaurant alternatives. With less disposable income, some customers are opting for the cheaper alternative of buying snacks and candy instead of the aforementioned dining options. Additionally, customers are more time-starved, and it's just more convenient to pick up a snack and run.
Walker: I agree. There continues to be the treat/indulgence factor at the expense of other categories.
Arnold: I tend to agree just because the category remained flat even during the gas retail spike in May/June. We have really experienced no drop in sales.
Sturtevant: I agree, only because our snack sales back it up. It will be interesting to see what happens during the next year.
Messmer: For the time being, by doing promotions and trying to offer attractive price points on key items, it shouldn't really affect consumer spending on candy and snacks in our stores. But as retails increase, we could definitely start to see a change in consumer buying patterns. We used to do price increases once a week, and now it's twice a week. This is on items throughout the store from candy to groceries to beer. Something is going up every day now.
CSNews: Which sub-segment in candy or snacks stands out the most for you right now? How will you highlight that business going forward?
Stukus: We have seen some very large gains in warehouse-delivered salty snacks, mainly as a result of increasing the space for these items, such as Pringles and Combos. In addition to the sales lift, the margin gains are very healthy, especially when compared to the items from Frito Lay. We don't carry any of the non-chip items from Frito for this reason. Another area we have seen a large sales increase is in the energy/nutrition bar category. I don't necessarily think it is because our customers have all of a sudden decided to focus more on nutrition. Instead, it's because customers are viewing these bars as a cheaper meal solution than the restaurant and quick-service restaurants. The newer protein bars from MET-Rx, Supreme Protein and Power Bar are larger and very substantial meal solutions.
Walker: In candy, king size stands out, and in snacks, it's meat snacks.Going forward, those will be highlighted with expanded planogram space and secondary merchandising opportunities.
Arnold: For us, it's gum and mints. We moved them to the front and placed them throughout the store with small counter units or wings.
Messmer: Right now we're doing pretty well with gum sales, especially with new packs like Stride. It became our No. 2 selling brand behind Wrigley Winterfresh. So we've been working with our gum suppliers and doing more countertop units and shippers, and also doing cents-off promotions on a monthly basis. Cadbury Adams has done a really good job with shippers this year. They've done a couple buy one/get one free gum packs, which have been really successful.
CSNews: Dark chocolate has had a lot of industry attention. Where do you see it fitting into your business, if at all?
Eaton: I have a premium chocolate set that features some dark chocolate and high-end milk chocolate. Initial sales look promising.
Messmer: At the present time, we haven't done anything with premium darks or higher-end chocolates. I'm really waiting to see if somebody comes out with a way to merchandise it. You need to differentiate it from regular candy, so I'm looking to see merchandising vehicles that would allow us to separate it into its own category, but not devoting a whole 4-foot section to it. I'm thinking maybe a small rack where you could put up the top eight SKUs — something that could attach to the gondola next to the candy section. If we just tried to put it in the candy section, it would get lost.
Stukus: I think we are a few years off on this one.
Walker: From where we sit, we may be over the peak in dark chocolate.
Sturtevant: This has had a minimal effect on our business, and I am not seeing as many new items made with dark chocolate this year as we did last year.I believe this fad has peaked.
CSNews: Healthier snacks have had a lot of industry attention, too. Do these have a place in your business?
Stukus: I really believe they do. The professional drivers are the most health-challenged population I have seen, and I think there is a real opportunity for us to change this. It's just a very hard lifestyle to be able to stay fit and eat well. I think the major wholesalers are finally beginning to realize this is a huge growth segment for the convenience store industry. There are just not enough mainstream healthy items in full distribution for us to effectively dedicate a section to better-for-you items. I walk the aisles of Whole Foods and other similar retailers and realize how many opportunities there are. The suppliers just need to step up and start creating more small alternatives. In the DSD world, Snyder's of Hanover has some very good healthy items that are selling well in some of our locations.
Walker: Yes, we're experiencing continued growth here. Kellogg's, General Mills and Kraft are providing new, innovative products.
Sturtevant: If by "healthy" you mean Sunchips or a MET-Rx bar, they definitely have a place in my business. Once you cross over into rice puffs, the fun is over in "healthy," however. We have seen tremendous growth in alternative bars too.
Eaton: Besides the normal healthy items, we are looking at 100-calorie packs and high protein items.
CSNews: Is the proliferation of new items that the category is known for a help or hindrance to you?
Messmer: It's a little bit of both. Sometimes its hard to detect which ones will be winners, which ones should be discontinued and which ones will stand the test of time. But Wrigley going to slim packs was a great move. It really opened up extra space on the candy and gum racks to allow for more SKUs. Another good move was Frito Lay coming out with limited-edition Big Grab bags of chips. They're doing it pretty much every month. We're selling out within two weeks. Our customers like seeing different items. Typically, if there are new items I think will be successful, I like to put them out in a box on the counter and get a good barometer to see if it will sell out. I tell my vendors this is so much better than changing a whole planogram or trying to find a home for a new item right off the bat.
Stukus: It is what it is. You can't live with them, and you can't live without them. New items drive sales and excitement to the individual categories, but it is difficult to manage with a finite amount of shelf and floor space, not to mention pulling from multiple distribution centers.
Walker: It's a double-edged sword. It is where the growth inboth categories exists. But if something goes in, something has to come out.
Arnold: It is just a part of managing the category.
Sturtevant: New items help, and are the largest contributor to growth — that is if you are succeeding at being first to market.
Eaton: New items are a boost to sales. Some stick and do well. These items, along with the staples, are what build the category.
CSNews: What delivery/wholesaler issues are top of mind for you in the category? Do you have any best practice suggestions to pass on?
Stukus: We partner with McLane, and they do a great job for us with many of their value-added services such as planograms, resets, data analysis, etc. With the higher fuel costs, the DSD model continues to get tougher and tougher to manage, so any expansion of warehouse-delivered snacks sections can only help the retailer.
Eaton: Our wholesaler does a great job with candy. The challenge is to keep up with the new items and out-of-stocks commonly seen in the sweet and salty snack sets.
CSNews: What are some best practice merchandising tips you have either followed or created in the category?
Eaton: We recently added a take-home, 12-ounce or larger bag candy set in our newest store. We display the candy on a four-sided, stand-alone unit and placed a 3-foot M&M character on top to draw attention. It's too soon to tell if this works. Also, we have added kids' sets featuring cotton candies, the latest in novelty candy and a good selection of Savvi tattoos.
Messmer: We like to try and utilize shipper programs from our vendor partners and utilize our end caps for highly impulsive items. We also use the front counter a great deal for promotions and such. We try to have candy and snack items at points of interruption as guests are walking throughout the store.
CSNews: Are there any cross-channel ideas you've noticed that you'd like to incorporate or copy?
Messmer: We look at any opportunity to tie in snacks and candy with our beverage category. We had some success this summer with a Frito Lay Grab Bag and a 20-ounce Pepsi. And I'm still waiting for somebody to come in and find a way to tie in our snack purchases with gas. Gas is so emotional, so anytime we can do a program mixing those two together it's a win-win. Nobody's come up with one that works, but we're always looking for the opportunity. Filling up the tank and getting a free snack bag or candy bar has the potential to drive guests into our store. We want to do it big, and that's where the struggle comes in.
Eaton: I think there are some candies and snacks that can be cross-merchandised. Last year, we sold Yogo's in our candy set. It was introduced as a healthy snack for kids, but to me it was a healthy candy.
CSNews: Do you target specific consumers, such as kids after school, with any candy and/or snacks? Who are your target customers in the category?
Stukus: Many of the innovative new items are geared toward the younger crowd and our core customer is the 50-year-old professional truck driver. However, we have experienced much success with anything energy-related and any big-pack items.
Arnold: Everyone who comes through the door is a target for candy and snacks. The success of this category is all about impulse purchases.
Eaton: We limit our sets to the top-selling items, life-long favorites and new items. It is a well-rounded set for everyone with gum and mints, chocolates and sugar candies. We continue to see growth each year, so not a lot of dust is sitting on items that don't sell well.
Messmer: Once a quarter or so, depending on if there are new items, we try and work with a novelty candy company and target kids.
CSNews: In candy and snacks, how does the c-store channel stack up against others?
Stukus: We do a ton of business in our channel, but it is so much easier for the suppliers to deal with the Costco's and Wal-Mart's of the world, so we are kind of the forgotten channel. Additionally, it's tougher for the smaller supplier to get shelf space because of less square footage and the demanding needs of the larger companies. Because of that, we miss out on some good, innovative products in this channel, and the assortment essentially looks the same in every store you go into.
Eaton: C-stores do a tremendous job. Where else can you place a new product and have thousands of people a day see it? When a new candy/snack item is introduced to the market, I think it should start in c-stores and fan out to mass stores. In many cases the product starts at Wal-Mart and then trickles down to the c-store industry.
Messmer: We always have to keep our eye on drugstores as they build in our areas. People start to combine more of their trips, and drugstores are promoting candy and snacks. But we still have the word convenience and I think customers are more inclined to come in, grab and go at our stores.